Forecast Ideko's free cash flow (reproduce Table 19.10), assuming Ideko's market share will increase by 0.65 percent per year (see ); investment, financing, and depreciation will be adjusted accordingly; and the projected improvements in working capital do not occur (that is, the numbers in the table remain at their 2005 levels through 2010, and Ideko's working capital requirements through 2010 will be as shown here ). Ideko's production plant will require an expansion in 2010 (when production volume will exceed the current level by 50 % ), and the cost of this expansion will be $ 15.5 million. This amount will be borrowed from a financial institution at interest rate of 6.8 %. The new projected capital investments are shown here , while the income statement is provided here (Assume an income tax rate of 35 % .)

TABLE 19.10 SPREADSHEET Ideko's Free Cash Flow Forecast Year 2005 2006 2007 2008 2009 2010 Free Cash Flow ($ 000) 1 Net Income 2 Plus: After-Tax Interest Expense 3 Unlevered Net Income 4 Plus: Depreciation 5 Less: Increases in NWO 6 Less: Capital Expenditures 7 Free Cash Flow of Fim 8 Plus: Net Borrowing 9 Less: After-Tax Interest Expense 5,193 6,247 6,960 8,382 10,545 4,420 4,420 4,420 5,083 5,304 9,613 10,667 11,380 13,465 15,849 5,450 5,405 6,865 7,678 7,710 3,412 3,663 4,089) 4,685) (5,231) 5,000 5,000 (20,000) 15,000) (8,000) 13,475 7409 (5,845 1,458 10,328 15,000 5,000 4,420 4,420 4,420) 5,083) 5,304 9,055 2,989 4,735 1375 5,024 10 Free Cash Flow to Equity Data Table Growth/Year 2005 2006 2007 2008 2009 2010 Sales Data Market Size (000 units) Market Share Average Sales Price (S/unit) 5 00% 0.65% 2 00% 9,900.0 10,395.0 10,914.8 11,460.5 12,033.5 12,635.2 9.85% 10.50% 11.15% 11.80% 12.45% 13.10% 83.30 75.45 76.96 78.50 80.07 81.67 Cost of Goods Data 1 05% 16.69 16.87 Raw Materials (S/unit) Direct Labor Costs (S/unit) 17.04172217.40 17.58 4,05% 17.98 18.71 9.4720.25 21.07 21.93 Operating Expense Data Sales and Marketing (% sales) Administrative (% sales) 15.13 19.53 13.08 (72) (6,732) 6,732) 6,732) 6,732 (6,732) 16.48 17.83 19.18 19.53 18.08 15.08 15.08 14.08 13.08 Interest on Term Loan ($ 000) Data Table (Click on the Icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet) ldeko' s Working Capital Requirements Working Capital Days Assets > 2005 Days 90 2005 Accounts Receivable Raw Materials Finished Goods Minimum Cash Balance Based on: Sales Revenue Raw Materials Costs Raw Materials Labor Costs Sales Revenue 30 30 Liabilities Wages Payable Other Accounts Payable Raw Materials Sales and Marketing Direct Labor Admin Costs Data Table Working Capital ($ 000) 2005 2006 2007 008 2009 2010 Assets Accounts Receivable Raw Materials Finished Goods Minimum Cash Balance 18,14220,712 23,556 26,699 30,17033,999 3,588 8,063 7,852 8,900 10,057 11,333 30,364 34,672 39,443 44,718 50,548 56,983 2,0072,269 2,557 2,871 3,214 ,168 4,7875,4786,248 7,107 047 6,904 Total Current Assets Labilities Wages Payable 2,233 6,908 9,141 5,71829,336 33,220 37,534 42,433 47,842 5,409 26730 566 1,752 1,955 3,379 3,976 4,6465,336 6,223 7,184 8,115 4,657 5,432 6.160 Other Accounts Payable Total Current Liabilities Net Working Capital Increase in Net Working Capital 3,618 3,884 4,314 4,899 Data Table (Click on the Icon located on the top-right comer of the data table below in order to copy its contents into a spreadsheet) 2010 20,450 (5,460 5,409) 5,363) 5,322) 5,285) (6,801) Fixed Assets and Capital Investment (S 000) 2005 4.950 2006 4.950 2007 4.950 2008 4,950 2009 4,950 New Investment Depreciation Data Table (Click on the Icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet) Estimated 2005 Income Statement Data for Ideko Corporation Income Statement (S 000) Sales Cost of Goods Sold 73,575 (16,275) (17,533) 39,767 (11,132) (13,302) 15,333 (5,460) 9,873 (72) 9,801 (3,430) 6,371 Raw Materials Direct Labor Costs Gross Profit Sales and Marketing Administrative EBITDA Depreciation EBIT Interest Expense (net) Pretax Income Income lax Net Income Forecast Ideko's free cash flow (reproduce Table 19.10)assuming Ideko's market share will increase by 065 percent per year (see EB). investment, financing and depreciation will be adjusted accordingly an d the ro ected improvements in working capitaldo not occur that is, the numbers in the table remain at their 2005 levels through 2010, and Ideko's working capital requirements through 2010 will be as shown here) Ideko's production plant will require an expansion in 2010 when production volume wi exceed the current level by 50% and the cost of this expansion will be $15.5 million. This amount wil beborrowed from a financial institution at interest rate of 6.8%. The new pro ected capital investments are shown here while the income statement is pro ed here Assume an income tax rate of 35%.) Calculate Ideko's free cash flow through 2010 below: (Round to the nearest 5 000) Free Cash Flow (S 000) Net Income 2006 Plus: After-tax Interest Expense Unlevered Net Income Plus Depreciation Less: Increase in NWC Less: Capital Expenditures Free Cash Flow of Firm Plus. Net Borrowing Less After-tax Interest Expense Free Cash Flow to Equity Show transcribed image text TABLE 19.10 SPREADSHEET Ideko's Free Cash Flow Forecast Year 2005 2006 2007 2008 2009 2010 Free Cash Flow ($ 000) 1 Net Income 2 Plus: After-Tax Interest Expense 3 Unlevered Net Income 4 Plus: Depreciation 5 Less: Increases in NWO 6 Less: Capital Expenditures 7 Free Cash Flow of Fim 8 Plus: Net Borrowing 9 Less: After-Tax Interest Expense 5,193 6,247 6,960 8,382 10,545 4,420 4,420 4,420 5,083 5,304 9,613 10,667 11,380 13,465 15,849 5,450 5,405 6,865 7,678 7,710 3,412 3,663 4,089) 4,685) (5,231) 5,000 5,000 (20,000) 15,000) (8,000) 13,475 7409 (5,845 1,458 10,328 15,000 5,000 4,420 4,420 4,420) 5,083) 5,304 9,055 2,989 4,735 1375 5,024 10 Free Cash Flow to Equity Data Table Growth/Year 2005 2006 2007 2008 2009 2010 Sales Data Market Size (000 units) Market Share Average Sales Price (S/unit) 5 00% 0.65% 2 00% 9,900.0 10,395.0 10,914.8 11,460.5 12,033.5 12,635.2 9.85% 10.50% 11.15% 11.80% 12.45% 13.10% 83.30 75.45 76.96 78.50 80.07 81.67 Cost of Goods Data 1 05% 16.69 16.87 Raw Materials (S/unit) Direct Labor Costs (S/unit) 17.04172217.40 17.58 4,05% 17.98 18.71 9.4720.25 21.07 21.93 Operating Expense Data Sales and Marketing (% sales) Administrative (% sales) 15.13 19.53 13.08 (72) (6,732) 6,732) 6,732) 6,732 (6,732) 16.48 17.83 19.18 19.53 18.08 15.08 15.08 14.08 13.08 Interest on Term Loan ($ 000) Data Table (Click on the Icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet) ldeko' s Working Capital Requirements Working Capital Days Assets > 2005 Days 90 2005 Accounts Receivable Raw Materials Finished Goods Minimum Cash Balance Based on: Sales Revenue Raw Materials Costs Raw Materials Labor Costs Sales Revenue 30 30 Liabilities Wages Payable Other Accounts Payable Raw Materials Sales and Marketing Direct Labor Admin Costs Data Table Working Capital ($ 000) 2005 2006 2007 008 2009 2010 Assets Accounts Receivable Raw Materials Finished Goods Minimum Cash Balance 18,14220,712 23,556 26,699 30,17033,999 3,588 8,063 7,852 8,900 10,057 11,333 30,364 34,672 39,443 44,718 50,548 56,983 2,0072,269 2,557 2,871 3,214 ,168 4,7875,4786,248 7,107 047 6,904 Total Current Assets Labilities Wages Payable 2,233 6,908 9,141 5,71829,336 33,220 37,534 42,433 47,842 5,409 26730 566 1,752 1,955 3,379 3,976 4,6465,336 6,223 7,184 8,115 4,657 5,432 6.160 Other Accounts Payable Total Current Liabilities Net Working Capital Increase in Net Working Capital 3,618 3,884 4,314 4,899 Data Table (Click on the Icon located on the top-right comer of the data table below in order to copy its contents into a spreadsheet) 2010 20,450 (5,460 5,409) 5,363) 5,322) 5,285) (6,801) Fixed Assets and Capital Investment (S 000) 2005 4.950 2006 4.950 2007 4.950 2008 4,950 2009 4,950 New Investment Depreciation Data Table (Click on the Icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet) Estimated 2005 Income Statement Data for Ideko Corporation Income Statement (S 000) Sales Cost of Goods Sold 73,575 (16,275) (17,533) 39,767 (11,132) (13,302) 15,333 (5,460) 9,873 (72) 9,801 (3,430) 6,371 Raw Materials Direct Labor Costs Gross Profit Sales and Marketing Administrative EBITDA Depreciation EBIT Interest Expense (net) Pretax Income Income lax Net Income Forecast Ideko's free cash flow (reproduce Table 19.10)assuming Ideko's market share will increase by 065 percent per year (see EB). investment, financing and depreciation will be adjusted accordingly an d the ro ected improvements in working capitaldo not occur that is, the numbers in the table remain at their 2005 levels through 2010, and Ideko's working capital requirements through 2010 will be as shown here) Ideko's production plant will require an expansion in 2010 when production volume wi exceed the current level by 50% and the cost of this expansion will be $15.5 million. This amount wil beborrowed from a financial institution at interest rate of 6.8%. The new pro ected capital investments are shown here while the income statement is pro ed here Assume an income tax rate of 35%.) Calculate Ideko's free cash flow through 2010 below: (Round to the nearest 5 000) Free Cash Flow (S 000) Net Income 2006 Plus: After-tax Interest Expense Unlevered Net Income Plus Depreciation Less: Increase in NWC Less: Capital Expenditures Free Cash Flow of Firm Plus. Net Borrowing Less After-tax Interest Expense Free Cash Flow to Equity Show transcribed image text